A LEAP (Long-term Equity Anticipation Securities) spread is an options strategy using long-term contracts, typically with expiration dates more than a year away.

Recently, we demonstrated this strategy’s effectiveness with a 64.8% gain on Snowflake in five months.

The Basics of Spreads

In options trading, a spread represents the distance between two strike prices.

This strategy involves simultaneously buying and selling options at different strike prices, reducing both cost and risk compared to outright stock purchases.

Think of it as buying insurance while also selling insurance at a different price point – the difference between these prices creates your spread.

For example, back in June we liked SNOW because it had a lot of insider buying, and at the time the stock was trading lower than what Warren Buffett acquired for it.

I believed the stock was due for a bounce but wanted to give it ample time for the trade to work out.

So we bought the $125 call expiring on January 16 2026 for $35.72 and sold the SNOW $160 calls expiring on January 16 2026 for $23.23.

This brought the price down to $12.49.

The spread was $35 wide ($160-$125), and had a max profit potential of $22.51 ($35-$12.49).

The beauty of the strategy is it defined our risk, gave us a strong risk-to-reward setup, and didn’t require us to micro-manage the position.

And when SNOW delivered a blowout quarter a few weeks ago, we were able to sell our spread for $20.59!

Which was good for a 68.4% gain for The War Room members.

Our Latest Trade: Tesla LEAP Spread

We recently implemented this strategy again with Tesla, choosing a spread approach because both the individual options and underlying shares were particularly expensive.

By using this strategy, we significantly reduced our cost and lowered our break-even point, while increasing our probability of success.

Our risk was limited to approximately 10% of the underlying stock price, compared to 25% with direct stock ownership.

The trade we executed was a bull call spread, betting on Tesla’s price appreciation over a two-year timeframe.

While our potential return is impressive at four times our initial investment, we did cap our maximum profit – a reasonable trade-off for the reduced risk.

As they say on Wall Street, there’s no free lunch… reducing risk means accepting some limitations on potential returns.

The Tesla-Musk Connection

Our investment thesis goes beyond just the numbers. Tesla serves as a proxy for Elon Musk’s various ventures, and his increasing political influence plays a significant role.

His frequent interactions with political leaders, including the President-elect, suggest potentially favorable conditions for Tesla’s future.

The market currently values Tesla more as a technology company than a traditional automotive manufacturer, recognizing its broad reach across energy storage, artificial intelligence, and automotive innovation.

Managing Risk Through Spreads

The volatile nature of high-profile personalities like Musk adds an extra layer of uncertainty to any Tesla investment.

This is precisely why the spread strategy makes sense – it helps manage these risks while maintaining upside potential within defined limits.

By lowering our initial investment and reducing dollar risk, we create a more controlled approach to participating in Tesla’s growth story.

Getting Started with Spread Trading

While spread trading might seem intimidating at first, it’s a valuable strategy that every serious trader should consider.

To get started, you’ll need broker approval for options trading, which typically requires demonstrating your understanding of spread mechanics and risk management principles.

YOUR ACTION PLAN

In The War Room, we don’t just execute trades – we educate. Our platform provides comprehensive resources including detailed tutorials, real-time guidance, and step-by-step trade instructions.

We are always available to help you understand the nuances of these strategies.

Remember, while spreads can effectively reduce risk compared to traditional stock or option purchases, they remain sophisticated financial instruments that deserve careful study and thoughtful implementation.

The time invested in learning these strategies can pay significant dividends in your trading success.

Click here to learn how you can start with The War Room.